When financial statements hit the C-suite, they're often accompanied by detailed analyses explaining what impacted cost of sales, what caused any revenue shortfalls, and why operating expenses exceeded budgets. Explanations of these metrics, however, are often interrupted by pointed questions from senior management: "What happened in foreign exchange? And what the heck caused that FX loss?" An executive with these questions usually has to wait for the answers.

The FX Gain/Loss line on financial statements is poorly understood by most finance and accounting professionals. In fact, it's frequently the only earnings line without Sarbanes-Oxley controls a decade after that law passed and two decades after the COSO framework was released.

On its face, that's surprising. The elements underlying foreign exchange (FX) gains and losses are all arrived at with common math. There's no calculus, no Monte Carlo simulations, and no linear algebra; it's simply addition, subtraction, multiplication, and division. Why, then, is there so much mystery around the result? Why can't every treasury and accounting organization quickly and efficiently explain how it multiplied, divided, subtracted, and added up the numbers?

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